TLDR
South Koreas major crypto exchanges are pushing back against a new antimoney laundering (AML) draft that they say is unworkably strict and could harm the local market.
- The draft would force exchanges to auto-report all overseas-linked crypto transfers above 10 million won (about 6,800 USD) as suspicious, driving an estimated 85-fold surge in reports.
- Industry group DAXA, representing 27 exchanges including Upbit and Bithumb, argues the rules exceed the law, create unequal treatment versus banks, and could overwhelm compliance systems.
- Regulators are in a consultation phase through May, with final rules expected around July and staggered implementation in 202627, leaving room for revisions but also ongoing uncertainty.
Deep Dive
1. What The AML Draft Would Do
The Financial Services Commission and Financial Intelligence Unit proposed that all overseas-linked crypto transfers above 10 million won must be reported as suspicious transactions, regardless of actual risk.
The Digital Asset eXchange Alliance (DAXA) estimates this would boost annual suspicious transaction reports from roughly 63,000 to about 5.4 million, an 85-fold jump that it calls virtually unworkable for exchanges compliance teams.
The draft also introduces tighter duties to verify the accuracy of customer information, going beyond existing know-your-customer rules, according to industry submissions summarized in a recent overview.
The proposal effectively treats large cross-border crypto transfers as suspicious by default, turning a risk-based regime into a volume-based trigger.
2. Why Exchanges Are Pushing Back
DAXA, which includes Upbit, Bithumb, Coinone, Korbit, and Gopax, argues the decree tries to impose new obligations via subordinate regulation that are not clearly grounded in the main statute.
Industry groups also say crypto firms face harsher penalties, such as business suspensions for verification lapses, while traditional financial institutions would typically face lighter sanctions for similar issues.
Recent court decisions have already suspended or overturned some FIU-imposed AML sanctions on Upbit, Bithumb, and Coinone, suggesting judges want more proportionality and recognition of exchanges good-faith compliance efforts.
Regulators want tighter AML, but courts and industry are pushing for rules that remain risk-based and proportionate instead of blanket triggers.
3. Timeline And Market Implications
The public comment period on the AML amendments runs until mid-May, with finalization expected around July and certain provisions scheduled to take effect from August 2026 through 2027.
If the rules pass broadly unchanged, exchanges may need more staff, slower processing for larger cross-border transfers, and stricter documentation, which could nudge some volume to offshore or decentralized venues.
Conversely, a revised draft that keeps high-risk flows in focus while easing blanket reporting could improve regulatory clarity without crippling local platforms operations.
For Korean users, the key signals will be whether the final rules remain blanket-style or get refined, and whether heightened friction pushes liquidity out of domestic exchanges.
Conclusion
South Korea is trying to bring crypto AML controls in line with global standards, but its current AML draft leans toward automatic suspicion rather than risk-based supervision.
How regulators adjust the proposal in response to industry feedback and court signals will determine whether Korea ends up with a stricter yet workable framework, or one that inadvertently drives activity away from regulated local exchanges.
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